5. process cost systems

Universidad CuauhtémocCampus Aguascalientes

Process Cost SystemsAnálisis de CostosProcess Cost SystemsAnálisis de Costos

Maestría en Administración

Job Order Cost System

Job CostSheets

Dept. A and Dept. B

Comparing Job Order Costing and Process Costing


Direct materialsDirect materialsFactory overheadFactory overheadDirect laborDirect labor

Work in Process Account to Finished

Goods

to Finished Goods

Process Cost System

Direct materials

Work in Process Account

Work in Process Account

DEPT. A DEPT. B

Factory Overhead

Direct Labor

Factory Overhead

Direct Labor

to Finished Goods

to Finished Goods



determine a product cost by measuring the amount of direct materials and direct labor used and allocating overhead costs.

allocate overhead using a predetermined overhead rate (or activity-based costing).

maintain perpetual inventory records with subsidiary ledgers for Materials, Work in Process, and Finished Goods.

Both systems:



Physical Flows for a Process ManufacturerPhysical Flows for a Process Manufacturer

Scrap Metal

Materials

MeltingDepartment

CastingDepartment

Molten metal

transferred from

Melting

To finished goods

CastingDepartment

MeltingDepartment

Physical Flows for a Process ManufacturerPhysical Flows for a Process Manufacturer

Materials WIP – Melting

Factory OH – Melting

DMPurchases of direct and

indirect materials

Direct materials used in productionDM

DM

Finished Goods

Cost of Goods Sold

Factory OH – Casting

WIP – Casting

Cost Flows for a Process Manufacturer


DM

DL

DM

Direct labor used in productionDL

Purchases of direct and

indirect materials

Finished Goods

Cost of Goods Sold


Actualcosts

incurred

WIP – Casting




Finished Goods

WIP – Casting

Cost of Goods Sold

DM

DL

DM

Indirect materials used in productionIM


indirect materials

IM

Factory OH – CastingFactory OH – Melting

Actualcosts

incurred

Actualcosts

incurred



Finished Goods

WIP – Casting

Cost of Goods Sold

DM

DL

DM

Factory overhead appliedFOA


indirect materials

IM


Actualcosts

incurred

FOA Actualcosts

incurred

FOA




Finished Goods

WIP – Casting

Cost of Goods Sold

DM

DL

DM

Cost transferred out/transferred inTO/TI


indirect materials

IM


Actualcosts

incurred

FOA Actualcosts

incurred

FOA

TO TI




Finished Goods

WIP – Casting

Cost of Goods Sold

DM

DL


indirect materials

IM


Actualcosts

incurred

FOA Actualcosts

incurred

FOA

TO TI

DL

Factory overhead appliedFOA

Direct labor used in productionDL

FOA

FOA




Finished Goods

WIP – Casting

Cost of Goods Sold

DM

DL


indirect materials

IM


Actualcosts

incurred

FOA Actualcosts

incurred

FOA

TO TI

DL

FOA

FOA

Cost transferred out/transferred inTO/TI

TO

TI





Finished Goods

WIP – Casting

Cost of Goods Sold

DM

DL


indirect materials

IM


Actualcosts

incurred

FOA Actualcosts

incurred

FOA

TO TI

DL

FOA

FOA

Cost of goods soldCOGS

TO

TI COGS

COGS


Melting Department of McDermott Steel Inc.

Inventory in process, July 1, 500 tons:Direct materials cost, 500 tons $24,550Conversion costs, 500 tons, 70% completed 3,600Total inventory in process, July 1 $28,150

Direct materials cost for July, 1,000 tons 50,000Conversion costs for July 9,690Goods transferred to Casting in July, 1,100 tons ?Inventory in process, July 31, 400 tons, 25%

complete as to conversion costs ?

Step 1: Determine the Units to be Assigned Costs

BeginningInventory500 Tons

Work in Process – Melting

Started1,000 Tons



Started1,000 Tons

Transferred1,100 Tons

In a perpetual inventory system,

outflows are recorded as they occur.

In a perpetual inventory system,

outflows are recorded as they occur.




Started1,000 Tons


EndingInventory400 Tons


Beginning Inventory 500 Tons1



Started1,000 Tons





Started & Completed ? Tons+

2



Started1,000 Tons





Started & Completed 600 Tons+

2



Started1,000 Tons




Started & Completed 600 Tons+

2

=Transferred Out 1,100 Tons

+ Ending Inventory 400 Tons3

Total units 1,500 Tons=


Total tons to be assigned costs

The equivalent units of production are the number of

units that could have been completed within a given

accounting period.

The equivalent units of production are the number of

units that could have been completed within a given

accounting period.

Step 2: Calculate equivalent units of production

Step 2: Calculate Equivalent Units of Production

Materials Equivalent UnitsTotal Percent EquivalentUnits Added Units

Inventory in process, July 1 500 0% 0Started and completed in July 600 100% 600Transferred out to Casting Dept. 1,100 600Inventory in process, July 31 400 100% 400Total tons to be assigned cost 1,500 1,000


500 EU of materials

500 tons beginning inventory

100% materials added in June

JULY 1

600 EU of materials

600 tons started and completed

100% materials added in July

JULY 31

400 EU of materials

400 tons ending inventory

100% materials added in July

1,000 Equivalent Units

Inventory in process, July 1

Note: Started and completed


No materials equivalent units

added to beginning inventory for July


Conversion Equivalent Units

Inventory in process, July 1 500 30% 150Started and completed in July 600 100% 600Transferred out to Casting Dept. 1,100 750Inventory in process, July 31 400 25% 100Total tons to be assigned cost 1,500 850

Total Percent EquivalentUnits Added Units

350 EU

500 tons beginning inventory

70% completed for conversion in June

JULY 1

600 EU

600 tons started and completed

100% completed for conversion in July

JULY 31

100 EU

400 tons ending inventory

25% completed for conversion in July

850 Equivalent Units



150EU

300 EU

Inventory in process, July 31 (75% to be completed for conversion in

August)

30% completed

for conversion

in July

Step 3: Determine the Cost per Equivalent Unit

Equivalent Units Direct Materials Conversion

Inventory in process, July 1 0 150

Started and completed in July (1,100 – 500) 600 600

Transferred out to Casting Dept.in July 600 750

Inventory in process, July 31 400 100

Total tons to be assigned cost 1,000 850

BeginningInventory$28,150


Materials$50,000

ConversionCosts

$9,690 Conversion Equivalent Unit Cost

Direct Materials Equivalent Unit Cost

$11.40 per EU of con-version

=

$50,000 direct materials cost1,000 direct materials equivalent units

$9,690 conversion cost

850 conversion equivalent units

Step 3: Determine the Cost per Equivalent Unit

$50.00 per EU of DM

=

Inventory in process, July 1 beginning balance $28,150

Equivalent units for completing the July in-process inventory 0 150

Equivalent unit cost x $50.00 x $11.40Cost of completed July 1 in-

process inventory $0 $1,710 1,710Cost of July 1 in-process

inventory transferred to Casting Department $29,860

Step 4: Allocate Costs to Transferred and Partially Completed Units

Direct Materials Conversion TotalCosts Costs Costs

Units started and completedin July 600 600

Equivalent unit cost x $50.00 x $11.40Cost to complete the units

started and completed inJuly $ 30,000 $ 6,840 $36,840



Equivalent units in endinginventory 400 100

Equivalent unit cost x $50.00 x $11.40Cost of ending inventory $ 20,000 $ 1,140 $21,140




MaterialsCosts

$50,000

Started andCompleted

$36,840



Total CostsCharged$87,840

EndingInventory$21,140

ConversionCosts$9,690

Total CostsAssigned$87,840

M 600 x 100% x $50.00 = $30,000C 600 x 100% x $11.40 = 6,840

$36,840

M 400 x 100% x $50.00 = $20,000C 400 x 25% x $11.40 = 1,140

$21,140

Beginning cost $28,150M 500 x 0% x $50.00 = 0C 500 x 30% x $11.40 = 1,710

$29,860

Total Costs Assigned $87,840

Costs


A cost of production report is prepared for each processing

department at periodical intervals.

A cost of production report is prepared for each processing

department at periodical intervals.

Cost of Production ReportCost of Production Report

The cost of production report provides the following production quantity and cost data:

The units for which the department is accountable and the deposition of those units.

The production costs incurred by the department and the allocation of those costs between completed and partially completed units.

A cost of production report also is used to control costs.A cost of production report also is used to control costs.

Units

Step 1 Step 2

Units charged to production:Inventory in process, July 1 500Received from materials 1,000Total units accounted for 1,500

Units to be assigned cost:Inventory in process, July 1

(70% complete) 500 0 150Started and completed in July 600 600 600Transferred to Casting Dept. 1,100 600 750Inventory in process, July 31

(25% complete) 400 400 100Total units to be assigned cost 1,500 1,000 850

Whole Direct Units Materials Conversion

Equivalent Units

Cost of Production Report—Melting Department

Costs Direct Materials Conversion Total CostsCosts

Step 3

Unit costs:Total costs for July in

Melting Department $50,000 $9,690Total equivalent units

(from Slide 43) ÷ 1,000 ÷ 850Cost per equivalent unit $ 50.00 $11.40


Costs Direct Conversion Total Materials Costs Costs

Step 4

Costs charged to production:Inventory in process, July 1 $28,150Cost incurred in July 59,690Total costs accounted for $87,840

Costs allocated to completed andpartially completed unitsInventory in process, July 1 $28,150To complete inventory of July 1 $ 0 $1,710 1,710Started and completed in July 30,000 6,840 36,840Transferred to Casting Dept. $66,700Inventory in process, July 31 $20,000 $1,140 21,140Total costs assigned $87,840


Universidad CuauhtémocCampus Aguascalientes

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5. process cost systems

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